Inequality and Mobility
Stockholm University - Institute for International Economic Studies (IIES); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Institute for the Study of Labor (IZA)
José Vincente Rodríguez Mora
Universitat Pompeu Fabra - Faculty of Economic and Business Sciences; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)
Hebrew University of Jerusalem - Department of Economics; Centre for Economic Policy Research (CEPR); LUISS Guido Carli, DPTEA
KSG Working Paper No. RWP02-009
We construct a model where wage inequality, intergenerational mobility and the distribution of skills are all jointly determined in general equilibrium, which is solved analytically. We show that it is important to treat these variables jointly, as they have a significant effect on each other. The model is used to understand both empirical regularities and policy implications. The main result of the paper is that changes in education, including public education, lead to a negative correlation between inequality and upward mobility, while changes in productivity tend to lead to a positive correlation between inequality and upward mobility. Hence, the observations that some European countries tend to be more equal but less socially mobile than the US, cannot be attributed to differences in public support to education, but rather to differences in productivity. Another result of the paper is that while public support to education benefits children of poor parents, it benefits children of skilled and rich parents by even more, improving their relative chances of success. Since parents care about their children, general public support to education can then increase the difference in welfare between skilled and non-skilled individuals, notwithstanding a reduction in wage inequality.
Number of Pages in PDF File: 43
Keywords: Economics - Macroeconomics, Education Policy
Date posted: June 19, 2002
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